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Singapore to regulate virtual currency industry

Singapore's central bank said on Thursday it plans to begin regulating virtual currency intermediaries such as bitcoin exchanges and vending machines, in order to address concerns they could be used for illicit transactions.

The move will make the city-state only the second country in the world to bring in such rules, following the United States.

(Read more: Singapore's first bitcoin ATM opens for business)

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Under proposals from the Monetary Authority of Singapore (MAS), intermediaries will have to verify the identity of their customers and report any suspicious transactions to the authorities.

Virtual currencies pose concerns for regulators because people can make transactions with them anonymously and there are no restrictions on trading across borders, fuelling concerns they could be used to launder money or for terrorism financing.

Last year criminal authorities in the U.S. indicted the operators of digital currency exchange Liberty Reserve and accused the company of helping criminals launder more than $6 billion in funds linked to everything from child pornography to software used for bank hacking.

In October, authorities there also shut down an online marketplace called Silk Road that was used for purchasing drugs and hiring hit men.

(Read more: Disappearing bitcoins? There's insurance for that)

However the virtual currency market took its biggest hit last month in Japan when Mt. Gox, once the world's largest bitcoin exchange, ceased operations and soon after filed for bankruptcy.

But, MAS does not intend to bring in any rules to deal with the safety or sound functioning of virtual currencies.

"Consumers and businesses should take note of the broader risks that dealing in virtual currencies entails and should exercise the necessary caution," said MAS deputy managing director Ong Chong Tee.

Singapore currently has at least two bitcoin exchanges and around half a dozen bitcoin "ATMs", although usage of virtual currencies is thought to be relatively low.

The industry in the city-state has attracted a lot of attention recently though, with the first bitcoin vending machine, designed by local startup Tembusu Terminals, starting business on February 27, just three days after Mt. Gox suspended all trading of the virtual currency.

(Read more: This is what the future holds for bitcoin: Goldman)

A week later, the apparent suicide of 28 year-old Autumn Radtke, the CEO of bitcoin-related Singapore-based First Meta, made headlines around the world, sparking speculation about bitcoin's role in the American's death.